The news overnight is that the European Union has launched an investigation into the corporate tax policies of Ireland, the Netherlands, and Luxembourg. The probe could have major implications for Apple, Google, Microsoft, Amazon, and Starbucks, among many other virtuoso U.S. tax avoiders.
As reported by the Irish Times, the named nations stand accused of offering “sweetheart deals” in which they selectively relax the rules or reduce the rates to favor specific companies. The EU probe follows hard on the heels of explosive revelations in a U.S. Senate investigation and seem to be concerned in particular to limit Apple’s ability to manipulate the global tax system. For tax purposes, many of Apple’s worldwide operations are technically controlled by five companies incorporated in Ireland. Yet only two of these has tax residency in Ireland and the others seem to be exempt from all corporate taxes worldwide. The net effect is that Apple paid less than 2 percent tax on its $37 billion in overseas profits in 2012, despite the fact that the average tax rate for countries in its main markets was 24 per cent.
Microsoft and Google also pay low taxes in part because subsidiaries based in Ireland account for much of their overseas revenues.
Luxembourg is under the EU microscope in part because Amazon runs much of its European revenues through subsidiaries based there, not least the activities of Amazon.co.uk, which serves the British market. Amazon’s tax avoidance activities have sparked a political firestorm in the UK. As for Starbucks, it bases some of its European operations in the Netherlands – and again the rationale seems to be tax-driven.
Of all the nations in the EU’s crosshairs, Ireland seems to have the least room for maneuver. This is because the Irish banking crash is far from resolved and the Irish government depends on the goodwill of Germany and France – long-time critics of Ireland’s corporate tax policies – to minimize the pain for overstretched Irish home buyers.
In explaining the probe, the European Commission has said its task is “to make sure that companies do not receive undue selective advantages through state aid.”
It added: “We are only in a first stage of information gathering at the moment and it is too early to speculate on whether this could lead to any specific state aid investigations.”
Ireland has denied that it plays favorites in its tax policy and Irish prime minister Enda Kenny has stated that the Irish tax system is “very transparent.”
As reported by the Financial Times, the Commission requested details of assurances given to several specific companies, including Apple and Starbucks.